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ANALYSIS

The Moscow Kremlin ... Russia eyes Gulf investment.
Image: Bigstock

Russia eyes Mideast foreign investment drive

MOSCOW, May 22, 2016

By Dmitriy Frolovskiy

Russia, which has attracted $23 billion from the Gulf over the past several years, is once again focussing on the region, even as low oil prices prompt Middle East nations to launch diversification programmes by investing abroad.

Economic woes have motivated the traditionally conservative Russian authorities to explore the alternatives to the Western markets of capitals. Therefore, Russia is now utilising available tools to attract more foreign investments from previously untouched destinations and has started looking towards the investors from the Arabian Gulf region with an augmenting interest.

The international sanctions against Russia combined with low energy prices put a heavy toll on the country’s economy. By various estimates, Russia has lost $170 billion due to the sanctions alone and $400 billion because of shrinking oil and gas revenues. The number of direct foreign investments also plunged by 92 per cent and growth perspectives look bleak amidst shrinking GDP for the second year in a row. However, it is more important to observe general trends within the country while assessing Russia’s perspectives.

Russia was recently ranked by Bloomberg as the 12th most innovative economy and its standing within Doing Business Report of the World Bank grew by 37 positions compared to the year earlier.

The augmenting interest towards the Arab investors among business and political circles of Russia reflected across the country’s media. The state-controlled outlets such as Sputnik and TASS recently boasted with materials discussing flocking to Russia Arab investments.

One of the few remaining independent media outlets, RosBusinessConsulting (RBC), likewise, came up with articles discussing the Arab investments. In particular, one publication was discussing Sheikh Faisal Bin Qassim Al Thani’s success story, who is known for expressing an interest into the real-estate sector in Russia’s Republic of Tatarstan.

$23 billion investment from the Gulf

The Kuwait Investment Authority (KIA) has recently doubled its investment to Russia from $500 million to $1 billion. Abu Dhabi’s Department of Finance has agreed to co-invest more than $5 billion and Mubadala signed a joint-venture with the Russian Direct Investment Fund (RDIF), major engine behind Russia’s maturing interest towards foreign investments, totalling $2 billion. In addition, the Qatar Investment Authority (QIA) is planning to invest up to $2 billion and Saudi Arabia’s Public Investment Fund (PIF), reportedly, up to $10 billion.

Most of the Arab investments were flocking to Russia through RDIF. According, to Kirill Dmitriev, CEO of RDIF, the fund counts investments in more than 20 holdings and its portfolio gives GCC countries exposure to different sectors of the huge Russian economy that despite all of its troubles remains seventh among 144 countries.

RDIF was earlier considered as a part of the Russian Vnesheconombank (VEB); just recently, it was transformed into the sovereign fund of the Russian Federation. The move that should grease the wheels for the investors, as it will make the Fund’s structure quite similar to the ones within the Gulf region.

As the Russian market will eventually resume its growth - it is a good chance currently to start buying local assets. The current Russian Rouble devaluation combined with low oil prices, likewise, serves as an additional stimulus for the investors as many Russia’s assets are now costing less. Therefore, the upcoming Saint-Petersburg International Economic Forum, Russia’s major event for outlining foreign and domestic strategy, will be devoted to addressing the issue of foreign investments.

The country might offer long-term growth perspectives across various sectors, some of which are crucial for the GCC’s diversification goals. More investments will imminently follow as the Gulf investors are getting familiar with the Russian realities. The Gulf investors are also largely interested in putting their money into something that offers predictable dividends – in particular, by investing into such spheres as agriculture, private healthcare, retail and infrastructure.

Russian infrastructural projects are now prioritized by the local political establishment. In effect, Dubai’s DP World has launched a joint venture with the RDIF, DP World Russia, which will boost development of key ports and logistics operators across the country.

The recently launched Industry Development Fund constitutes a number of projects that might be potentially interesting and still largely unexplored. The Fund is designed to boost Russia’s important substitution goals by distributing loans on favourable conditions to promising local manufacturers that should also be competitive internationally.

Therefore, the Russian government is pouring billions into it and just one year after the Fund was launched, it has already invested into more than 800 projects. The total volume of revenue of supported firms equals to 452 billion roubles ($6.7 billion) amid the Fund’s total budget of 73.5 billion roubles.

* Dmitriy Frolovskiy is a Moscow-based analyst and writer. His writings have been featured in the Huffington Post, the Diplomat, Foreign Policy Association, Russian International Affairs Council and others.




Tags: Kuwait | Russia | oil price | Gulf Investment | Sanctions |

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